Making climate finance work in agriculture

Farmers, like these women in Nepal, are eager to help the agriculture sector become part of the solution to climate change. / Photo: Neil Palmer/CIAT

It’s widely recognized that agriculture can be part of the solution to climate change. The worldwide agriculture sector currently accounts for between 19 percent and 29 percent of total greenhouse gas (GHG) emissions. A combination of policies, investments and targeted action is critical to achieve a low-carbon and climate-resilient agriculture sector.

But the question arises: Where will the money to fund this transition come from? Can farmers alone finance the productivity and climate change adaptation and mitigation changes that are needed?

The vast majority of climate finance has traditionally flowed to other sectors, accentuating even more the shortfall in finance for agriculture.

Due to perceptions of low profitability, along with high actual and perceived risks, lenders often severely limit the flows of finance directed to smallholder farmers and small and medium-sized enterprises (SMEs) in agriculture. Without access to capital, farmers cannot invest in raising their productivity and incomes, becoming more resilient to climate change and mitigating their farms’ negative impact on climate.

But untapped sources of capital exist for making agriculture more climate-smart — namely, in climate finance. A recent World Bank discussion paper, Making Climate Finance Work in Agriculture, explores ways to use climate finance to dramatically increase the flows of capital directed to smallholder farmers and agricultural SMEs, aiming to deliver positive climate outcomes.